Amazon Primes The Pump At Whole Foods

Amazon’s acquisition of Whole Foods has been far from a smooth transition to date. Between culture clashes (the data driven approach at Amazon versus the emotional and experiential approach of Whole Foods), changes of policies to small vendors and systems integration with widely reported out of stocks, Whole Foods seems to have lost some of its retail mojo. To be fair to Amazon, Whole Foods was struggling to re-position itself prior to the acquisition.

I have been watching closely to see how Amazon would be working to make changes. To date, I have seen the following:

Some very hyped (over-hyped) price cuts on a few hundred items within the store, mostly in perishables

The installation of Amazon pick-up lockers in many stores, which leverages convenience and presumably drives traffic

Amazon taking over delivery from Instacart in several markets, which replicates the rapid (1-2 hour) delivery model

Some “spot” price offerings linking discounts to Prime membership including a recent Mother’s Day special on tulips

Now, the long awaited integration appears to be happening. Whole Foods announced the roll-out of a rewards program in Florida, where Amazon Prime members will receive 10% off hundreds of items initially and also have access to rotating weekly specials. Whole Foods believes this will be a significant off-set to its high priced reputation.

The move is one that I have been expecting since the onset of the announcement. There is extremely high overlap between the customer bases. The new perks could make Whole Foods cheaper than conventional grocers for about 8 million of its customers who already subscribe to Amazon Prime, according to Morgan Stanley analysts. At the same time, Amazon has just raised the annual prime membership to $119 and needs to demonstrate that Prime will continue to add value beyond the most valued perk of free two-day shipping.

And of course, ideally, this may spur further Prime membership for Whole Foods shoppers who are not part of the program.

I expect this to create a short-term sales lift for Whole Foods. Long term, it provides Amazon with further data to understand omnichannel shopper behavior which can only benefit them more as Amazon continues to attack the retail food business on all fronts. Another tidbit from CIRP is that grocery is now the second most shopped category (after electronics) on Amazon. Food will only continue to grow off a very small base.